4th November 2023 – (Washington) In October, employers in U.S. exhibited a more cautious approach to hiring, adding a modest yet respectable 150,000 jobs. This development indicates that the labour market remains resilient, despite prevailing economic uncertainties and high interest rates that have increased borrowing costs for both companies and consumers.
Although last month’s job growth marked a significant decline from the robust gain of 297,000 jobs in September, it still suggests that many companies have a continued interest in expanding their workforce, underscoring the overall strength of the economy.
Economists contend that the United Auto Workers’ strikes against Detroit’s automakers likely curtailed October’s job growth by at least 30,000 positions. These strikes concluded this week with tentative settlements, resulting in improved pay and benefits for union workers.
Consequently, the unemployment rate saw a marginal increase from 3.8 per cent to 3.9 per cent in October.
Despite the Federal Reserve’s efforts to cool down the economy and curb inflation by raising its benchmark interest rate 11 times since March 2022, the US job market has remained steadfast. The steady pace of hiring has supported consumer spending, which stands as the primary driver of economic growth. Over the past three months, employers have added a healthy average of 225,000 jobs per month.
This jobs report arrives at a time when the Federal Reserve is assessing incoming economic data to determine whether to maintain its key interest rate, as it did this week, or raise it further in its pursuit of inflation control. In September, consumer prices rose by 3.7 per cent compared to the previous year. Although this figure significantly dropped from the peak of 9.1 per cent in June 2022, it still exceeds the Fed’s target level of 2 per cent.
The Fed closely examines monthly job data to evaluate whether employers are actively hiring and increasing wages due to labour shortages. In such cases, companies often pass on their higher labour costs to consumers through price hikes, thereby intensifying inflationary pressures.
The Federal Reserve’s policymakers aim to strike a balance by adjusting their key interest rate to simultaneously address inflation, support job growth, and prevent a recession. As the Fed has raised borrowing costs, inflationary pressures have eased, with U.S. consumer prices rising by 3.7 per cent in September compared to the previous year, down significantly from the June 2022 peak of 9.1 per cent.
Wage gains, which can contribute to inflation, have also been slowing. However, inflation levels remain comfortably above the Fed’s 2 per cent target, and workers’ year-over-year pay increases would need to decrease further to align with the central bank’s inflation objective.
Notably, despite economists’ long-standing predictions that the Fed’s escalating interest rates would trigger a recession, the US economy, as the world’s largest, has demonstrated resilience. From July to September, the country’s gross domestic product (GDP) — the total output of goods and services — grew at an annual pace of 4.9 per cent, the highest quarterly growth rate in over two years.
Moreover, companies continue to seek new hires. The Labor Department reported on Wednesday that employers posted 9.6 million job openings in September, a slight increase from August. Although job openings have decreased significantly from the record 12 million reported in March 2022, they still remain high compared to historical standards. Prior to 2021, before the robust recovery from the COVID-19 recession, monthly job openings had never surpassed 8 million. On average, there are now 1.4 job opportunities available for every unemployed American.
The combination of a robust economy and decelerating inflation has raised hopes that the Federal Reserve can achieve a “soft landing” — raising interest rates sufficiently to control inflation without pushing the economy into a recession.
Optimism is further fueled by an influx of individuals entering the job market, enticed by higher wages and reduced health risks associated with COVID-19. Additionally, the easing of pandemic-related school closures and a rebound in immigration have contributed to this trend.
Over the past year, more than 3.3 million people have either found employment or started actively searching for jobs. The increase in job applicants alleviates pressure on companies to raise wages.
The Federal Reserve’s decision this week to maintain its benchmark interest rate for the second consecutive time provides policymakers with an opportunity to assess the cumulative effects of previous rate hikes. Many economists believe that the Fed has concluded its cycle of rate increases, at least for the time being.
However, during a recent news conference, Fed Chair Jerome Powell cautioned that evidence indicating the economy is overheating or that labour market tightness is no longer easing could hinder progress on inflation and warrant additional rate hikes.
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